Economics 2 – Fall 2014 (81090)
(Microeconomics)
Professor: V. Lee Prescott
E-mail: vprescot@solano.edu
Voice Mail: (707) 864-7000 ext. 5072
SCC H drive contains a copy of the syllabus, lecture slides and graph exercises (access
from campus computer or go online to http://bcs.solano.edu/workarea/vprescot/
Note: My preferred method of communication is email! Please use email whenever possible.
Professor Consultation: by appointment. Feel free to consult with me about any assistance you may need
concerning this course. You may email or call anytime to schedule an appointment. Before and/or
after class is my preferred time to meet.
Academic Standing or Personal Problems/Situations: If you have any questions concerning your
academic standing, please contact me. If you have any personal problems that may influence your
behavior/performance/attendance in the class, please let me know about them.
Academic Regulations: Each student is encouraged to familiarize him/herself with the “Academic
Regulations” outlined in the college catalogue. Please note: students are responsible for
withdrawing from this course or from this college. Please familiarize yourself with the important
dates for withdrawing from this course by referring to the catalogue or online information.
Testing and Grading: Your performance on the tests will comprise over 90% of your final grade for the
course. Grading will be based on the following scale:
90 – 100 “A”, 80 – 89 “B”, 66 – 79 “C”, 56 – 65 “D”, 55 and Below “F”.
In order for a student to receive a grade of “A” or “B” the student must turn in all of the
homework assignments, including the article assignments, in satisfactory condition. All
assignments must be neat, typed or legible, free of spelling errors, stapled, and written in complete
sentences. Late assignments are not accepted.
The tests will generally consist of forty multiple choice questions, each worth two points (40x 2 =
80) and one essay question worth twenty (20) points for a total of 100 points each. For scheduled
tests, consult your course outline on page 2 of this handout. Homework is worth 4 points each and
the article assignment is worth 25 points.
Special Notes on Testing:
1. You will need to purchase (available in the College Bookstore) a SCANTRON MINI ESSAY
book, FORM #886-E. You will also need a #2 pencil.
2. MAKE-UP TEST….One only, for legitimate reasons. Unless the make-up test is cleared by the
professor ahead of time, there will be an automatic 10 points taken off for not taking the test at the
scheduled time. Make-ups will be given only by appointment. If you fail to take the missed test as
scheduled, an automatic score of “0” will be given. Please note: there is no make-up test for the
final exam, no exceptions.
Attendance: After you are late to class twice, each additional time you are late to class will be handled as
an absence. Absences can affect your grade (see next paragraph). Be on time.
Other Grade Factors: Class participation may be included as a minor part of your overall grade. Since
you can’t participate if you’re not in class, attendance will be one indication of participation. Also,
occasionally I may allow some optional extra credit assignments, but do not rely on these
relatively few extra credit points to significantly improve your grade.
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Tentative Outline
Principles of Economics 2
Emphasis on Microeconomics
Professor V. Lee Prescott
Required Text: Microeconomics
19th Edition by McConnell, Brue, Flynn
(Customized)
Strongly encouraged: Accompanying Study
Guide
Test dates are purposely not listed because they will vary according to classroom progress and we may
need the flexibility to adjust test schedules. I will give you notice before a scheduled test. This is another
good reason to be in class.
Chapter
Title
3
4
6 and appendix
TEST #1
Demand, Supply, and Market Equilibrium
Elasticity
Consumer Behavior and Appendix – Indifference Curve Analysis
CHAPTERS 3, 4, 6, 6A HOMEWORK DUE THE DAY OF THE TEST!
7
8&9
TEST #2
Business and The Costs of Production
Pure Competition in the short run (Ch. 8) and long run (Ch. 9)
CHAPTERS 7, 8, 9 HOMEWORK DUE THE DAY OF THE TEST!
10
11
TEST #3
Pure Monopoly
Monopolistic Competition and Oligopoly… up to, but not including Oligopoly
CHAPTERS 10 and 11 HOMEWORK DUE THE DAY OF THE TEST!
11
18
TEST #4
Monopolistic Competition and Oligopoly… beginning with Oligopoly
Antitrust Policy and Regulation
CHAPTERS 11 and 18 HOMEWORK DUE THE DAY OF THE TEST!
23
24
International Trade
The Balance of Payments, Exchange Rates and Trade Deficits
TEST #5

FINAL: CHAPTERS 23 AND 24 HOMEWORK DUE THE DAY OF
THE TEST!
Final exam schedule: 12/16/14 – 6:00pm
Homework assignments for each chapter are listed below. The questions are the “Study Questions” at
the end of the chapters.
Chapters
3
4
6 and
Appendix
*************
7
8 and 9
*************
10
11
*************
11
18
*************
23
24
Questions
Questions #2, 3, 6 and 11. Problems #3 and 4.
Questions #2, 5, 6 and 10.
Questions #4 and 8. Appendix questions #1 and 3.
***************************
Questions #1, 4 and 7.
Ch. 8 questions #2 and 3 and problem #4. Chapter 9 question #1.
***************************
Questions #3 and 4. Problems #1 and 2.
Questions #2 and 5.
***************************
Questions #6, 9, and 10.
Questions #2, 3, and 12.
***************************
Questions #4 and 5. Problems #2.
Questions #2 and 5. Problem #1.
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Article Assignment: This 25 point assignment is due the last day of class. For each chapter, find an
article in a recognized news source (newspaper, magazine or online) that relates to a concept
from that chapter. Explain how the article relates to the concept from the chapter. Your work must be
typed or legible and clearly show me that you understand the concept. Attach the article to your written
work. You must include a cover page and table of contents showing the chapter, concept and source.
Following is an example of an article assignment:
[QUOTE]
“In Chapter 10 we discussed the concept of natural monopolies. The classroom example we used was
PG&E, where we described the requirement that PG&E obtain approvals from the California Public Utility
Commission (PUC) to raise rates to consumers. The following article found in the Chesterton Tribune is a
good example of the dynamics and relationship between a state utility commission and a natural
monopoly. In this case, the article describes a water utility company in Indiana that is attempting to gain
rate increase approvals from the Utility Regulatory Commission.
The dilemma with regulating natural monopolies is in finding the middle ground to keep consumer rates
reasonable, yet still allow the natural monopoly to earn a reasonable return on their investment. This is
particularly important when the firm is trying to implement research and development to improve products
or services, or needs to invest in long term infrastructure. The infrastructure argument is essentially what
the Indiana-American Water Company is using as the rationale for a rate increase. The difficulty the
regulatory agency encounters is to understand whether the firm is spending money efficiently and
whether expenditures will result in the long term best interest of the customers.
The dilemma will remain because of the shape of the long run average-total-cost curve of a natural
monopoly. Because of extensive economies of scale, society is better off with a monopoly because high
output levels result in lower average total costs. However, often their products and services are highly
inelastic and consumers could easily get “gouged” on pricing if the regulatory agency didn’t play a strong
“watch dog” role in protecting the consumer. In essence, the agency needs to ensure the firm doesn’t
earn economic (above industry expectations) profits in the long run and profits are held to normal profits
for that given industry.”
Water company seeks rate hike of 7 percent, would be sixth since 2002
Chesterton Tribune – May 9, 2011 - By KEVIN NEVERS –
Almost exactly one year after Indiana-American Water Company (IAWC) enacted a rate hike of 27.06 percent for
Northwest Indiana residents—on May 3, 2010—IAWC has filed a petition before the Indiana Utility Regulatory
Commission (IURC) seeking another hike, this one of 7.01 percent. According to a statement released after deadline
on Friday, “ongoing infrastructure investments, rising expenses related to water treatment and delivery systems, and
increased operating costs are all drivers behind today’s rate request.” If approved by the IURC as requested, this
most recent rate petition—the sixth in the last years—would increase the bill for the average household using 4,800
gallons per month by 9 cents per day or $2.70 per month. The average household is currently paying $31.98 per
month. Prior to last year’s rate hike of 27.06 percent—23 cents per day or $6.81 per month—the average household
had been paying $25.17 per month. Between June 30, 2009, and June 30, 2011, IAWC will have “invested more than
$115 million statewide to enhance its water infrastructure,” the statement said. “All these investments in local water
infrastructure systems enhance water quality, service reliability, and fire protection for customers while keeping the
cost of water service for most local households at about a penny per gallon.”
IAWC’s “strategy is to make prudent, proactive infrastructure investments, which is more cost-effective in the long run
and reduces the risk of major service and water quality issues,” IAWC President Alan DeBoy said. “Much of this rate
request is driven by Indiana-American Water’s investments to maintain and upgrade infrastructure throughout the
state.” IAWC’s “rate are based on the true costs of providing water service, as reviewed by the IURC,” DeBoy
continued. “The company works hard to operate efficiently and control operating expenses while, at the same time,
balancing that objective with the continuous need for significant capital investments to meet increasing state and
federal requirements and customer expectations.” Terry Atherton, IAWC’s Northwest Indiana operations director,
noted that IAWC has invested more than $17.6 million in local infrastructure over the last two years: $5.2 million to
replace or move water mains and hydrants; $2.2 million to install new meters and service lines; and $10.1 million to
improve pumping, treatment, storage, and office facilities. IAWC expects the regulatory review of its petition to take
about a year. Public hearings are part of the process.
[END QUOTE]
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Additional Course Information
Student Learning Outcomes (SLO):
1) Explain consumer decision making using indifference curves.
2) Analyze the four basic market models and their profit-maximizing output based upon
their costs of production, marginal revenue, demand, and elasticity of demand, critiquing
the efficiency of the market.
3) Develop circumstances that make international trade desirable and explain how trade is
financed.
Other Student Performance Objectives:
As a result of successful completion of this course, a student will be able to:
1. Explain the meaning of elastic, inelastic, and unitary elastic demand and apply the total
revenue test to determine whether demand is elastic, inelastic, or unitary elastic.
2. Explain consumer decisions using indifference curves and how demand is derived from
indifference curves.
3. Define economic cost and explain the difference between an implicit and explicit cost.
4. List the major characteristics of each of the four basic market models.
5. Describe the effects of a pure monopoly on the price of a product, the quantity of a
product produced, and the allocation of the economy's resources.
6. Identify the "waste of monopolistic competition" and explain why product differentiation
may "offset" these wastes.
7. Employ the kinked demand curve to explain why oligopoly prices tend to be inflexible.
8. Set forth the case against monopoly.
9. State the economic circumstances which make it desirable for nations to specialize and
trade.
10. Explain how American exports create a demand for dollars and generate a supply of
foreign exchange and how American imports create a demand for foreign exchange and
generate a supply of dollars.
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